There may be higher spending on gift cards this holiday season and this could help increase retail sales next year, former US Walmart President and CEO Bill Simon told CNBC on Thursday.
The payment service Blackhawk Network found in a survey that shoppers anticipated spending, on average, about $ 313 on holiday cards during the holidays. This is an increase of 19% compared to the 2019 average. In addition, 52% of survey respondents indicated that they are likely to buy more gift cards in 2020 than in the past.
In an interview with Closing Bell, Simon said that increased spending on gift cards could initially have a negative impact on retailers, which are already facing the outage caused by the coronavirus pandemic.
“Gift cards are wrong … because you don’t recognize the sale when the customer buys the card. You recognize the sale when it’s actually exchanged,” he said. “So as you try to measure holiday sales, you will have this debt in the balance sheet that is not a sale, even if the sale was made.”
However, the impact of gift card purchases could be much more favorable next year, said Simon, who was president and CEO of Walmart USA from 2010 to 2014.
One of the reasons is that when recipients go shopping, they tend to spend beyond the face value of the gift card. “About 20% to 30% more than the gift card is what you generally see,” he said.
The second reason is that there can be about “3% to 5% breakage, meaning books that are not redeemed,” according to Simon. “It may be a little unpredictable for retailers, but it will take time to complete the cycle.”
There could be variability when retailers begin to see the benefits of holiday gift card purchases next year, Simon said, pointing to the lingering uncertainty surrounding Covid-19. Asked, however, whether retailers could see stronger-than-normal sales in the first quarter, Simon replied that “they could and should.”
“If people are still reluctant to go out, they may not redeem their books until the second trimester and may fall during the year,” Simon said. “But I think from what we see in the growth of gift card shopping, it probably seems.”